Oil prices saw significant gains amid renewed conflict in the Middle East, with Brent North Sea crude trading above $91 a barrel before paring some gains, and West Texas Intermediate briefly surpassing $84. This surge, the highest in over a month, was driven by fears of sustained disruptions in the Strait of Hormuz, a critical shipping lane for approximately one-fifth of the world's oil, following exchanges of fire between the US and Iran. The escalating geopolitical tensions revived concerns that inflation could remain elevated, potentially complicating the path to lower interest rates.
Despite the oil price rally, US stock markets closed lower, with all three major indexes recording weekly losses. The AI and semiconductor sectors continued to experience a sell-off, pushing the Philadelphia Semiconductor Index into technical bear market territory. Key individual stocks like Nvidia ($2.28% down), TSMC ADR ($2.89% down), and AMD ($1.17% down) all saw declines. This investor caution was attributed to concerns over potentially overvalued AI trades and anticipation of upcoming tech earnings from companies such as Alphabet, Tesla, and Intel.
Analysts noted that markets were grappling with conflicting narratives: the inflationary pressure from rising oil prices versus signs of cooling underlying US inflation and a softer American labor market. While some suggested the energy shock might not trigger a new cycle of broad-based inflation, others warned that persistently high oil prices could erode household spending and impact economic growth. The Dow Jones Industrial Average fell $0.77% to 52,151.22 points, the S&P 500 Index declined $1.01% to 7,457.69 points, and the Nasdaq Composite Index dropped $1.40% to 25,520.24 points.
Asian markets also reflected these concerns, with the MSCI Asia-Pacific gauge outside Japan slipping $0.3%, and South Korea's chip-heavy Kospi falling $4.2%. However, Chinese blue chips bucked the trend with a $1.4% gain. The oil surge also led to increased expectations for a more hawkish Federal Reserve, with futures implying about 29 basis points of tightening by December and a roughly $60% chance of a September interest rate increase, which in turn lifted the 30-year Treasury yield above $5%.
